Domestic reverse charge Guide

Earlier this year, the government introduced a new legislation bill that sought to tackle and deal with fraudulent building and construction activity. This bill, known as the Domestic Reverse Charge Bill was officially put into place earlier this year on March 1st, of 2021.

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What is the DRC and what does it do?

Known simply as the DRC, the Domestic Reverse Charge is a new piece of legislation that states certain construction businesses may no longer be required to charge the supply of materials and services to VAT. In order to qualify, the materials must be required to be reported under the CIS. Those that aren’t will still have to account for their own VAT and what they would normally pay the supplier to the HMRC.

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The reason for this legislation is due to the increase in fraud opportunities observed for micro-businesses. Smaller and sub-contractors, due to their micro-status, have been able to avoid paying their collected VAT.

VAT (also known as Value-Added Tax) is a consumption tax that is put onto products as the value of the product increases throughout its production and ultimate point of sale. Users pay an amount of VAT that is on the product’s cost, less the material costs that may have already been taxed individually.

The CIS (also known as Construction Industry Scheme) is used to collect VAT as well as Income Tax from those involved in the construction world. This includes subcontractors and other self-employed or independent builders as well. This is done in place of them paying Income Tax or making National Insurance contributions. This is done by way of the HMRC using the CIS to collect taxes from said contractors.

In the construction industry, in particular, the DRC for VAT will specifically apply for any construction-based services that are supplied at standard rates or reduced rates. The services must also need to be reported under CIS and relates to both materials used as well as labour.

If a construction or business does not make onward supplies regarding their services, reverse charges will not apply. Because of this development, it is important that all customers that are currently registered for VAT and CIS ensure that their suppliers do not apply a reverse charge for services supplied to them.

As there will often be times a person does and does not pay the VAT reverse charge, it is important that everyone involved in the construction based industry have a full understanding of the new system. This may likely require working with an experienced accountant to ensure everything is properly in order.

In the below section, we have broken down and listed many possible and potential issues that may arise depending on the company’s business type. It is important to keep in mind, however, that there are no absolute rules, and that there will certainly be a fair bit of “grey area” involved. Reviewing this with an experienced accountant will ensure you and your company do not run into any issues later on in the construction process.

EU Vat return accountants guide

In 2021, there were major changes in the European Union(EU) Value added tax (VAT) rules for ecommerce businesses. The major change was the introduction of the single One stop shop (OSS) EU VAT return and the thresholds for distance selling were removed.

The other reforms were ending the VAT exemption for low value imports, and the new IOS return and making marketplaces the deemed supplier for VAT purposes.

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After July 1, 2021, businesses selling to consumers , and dispatching their goods from only one country, will not have to register for VAT in the foreign country and file VAT in the different countries.

Instead the business can complete the OSS form and file it along with their regular VAT return which will list their sales across the EU. The seller has to remit the VAT amount for items sold to the home country’s VAT authorities, which will then forward the taxes to the relevant countries based on sales.

Non-EU sellers can also apply for OSS regime, and specify the single EU state for registering, filing returns . The EU VAT reform package was to be implemented from January 1, 2021, but was postponed.

The new reforms are based on the success of the single VAT return, MOSS return for businesses offering services like digital, broadcast and telecom services to customers in 2015.

In addition to businesses selling products to customers, event organisers and service providers can also use OSS.

Distance selling rules ending

The existing EU VAT rules specify that the seller should charge VAT at the rate of the country, where the customer is residing, called the ‘destination principle’.

So for EU sales in different countries, sellers have to register in each country, where they sell goods. So to reduce the compliance burden for small sellers, a VAT registration simplification called the thresholds for distance selling, where sellers did not have to register if the amount was less than the specified amount. In Netherlands. Luxembourg and Germany it is Euro 100,000 and for other EU members Euro 35000 annually.

This simplification will be withdrawn from July 1, 2021, and charge the VAT at the applicable rate in the country where the customer is residing, so that it can remitted to the tax authorities

Single OSS EU VAT return

EU is extending the single VAT return to eCommerce business selling goods in different countries. These sellers are usually selling from stocks in their home state. Earlier the businesses were forced to register in every EU country, and this was extremely inconvenient for the sellers, reducing their sales.

However, the sellers having stock in multiple countries will not benefit, since they must register in every country where their stock is located. This is also applicable for sellers who are part of the FBA program of Amazon. Sellers who already have VAT registrations in other EU countries and are selling stock only from the country where they reside, can close the non-resident VAT registrations from 1 July 2021 to use the OSS report.

The sellers can declare the sales to customers within the same country in their VAT domestic returns

In addition to goods, OSS will report cross border services, specific domestic sales through marketplaces. The OSS return is filed by using the delivery address to identify the country where the customer is residing.

Then based on how the goods are classified, and the applicable rate in the customers country, VAT is charged, which may be lower or nil. The OSS should be filed quarterly. It is a simple form which specifies the VAT which the seller has to pay the country where his customer resides. For uniformity, the OSS return is standardized in all the member states of the EU.

Effect of Brexit on UK, EU sellers
The United Kingdom (UK) left the EU on 31 december, 2020 and Brexit is no longer applicable. UK sellers are treated as as non-EU sellers. If they wish to file a OSS return for ‘non-Union’ country sellers, they can register in any of the EU states.

The UK sellers are able to close their existing EU VAT registration in any country where they do not have a stock. UK sellers had to consider appoint a fiscal representative in the EU countries where they were registered. This will no longer be necessary from July 1, 2021, since they can use the OSS returns for non-EU countries.

Gm Professional Accountants have offices located in London. Contact us now for registration.